As a Fund shareholder, you may incur two types of costs: (1) transaction costs, including commissions on trading, as applicable; and (2) ongoing costs, including advisory fees and other Fund expenses. These examples are intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

 

The expense examples below are based on an investment of $1,000 invested at May 1, 2023 and held through the period ended October 31, 2023.

 

The Actual Expense figures in the table below provide information about actual account values and actual expenses. You may use this information, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled “Actual Expenses Paid During the Period” to estimate the expenses you paid on your account during this period.

The Hypothetical Expense figures in the table below provides information about hypothetical account values and hypothetical expenses based on each Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not each Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

 

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs. Therefore, the examples are useful in comparing ongoing costs only and will not help you determine the relative total cost of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

 

Portfolio of Investments*

 

Principal Amount						Value
Corporate Bonds — 70.2%
Communication Services — 5.7%
$	360,000			Verizon Communications, Inc.,
				4.52%, 9/15/48		$	269,392
	320,000			Walt Disney Co. (The), 2.65%, 1/13/31			259,745
							529,137
Consumer Discretionary — 4.6%
	300,000			Amazon.com, Inc., 1.50%, 6/03/30			233,820
	200,000			Home Depot, Inc. (The), 5.88%, 12/16/36			198,063
							431,883
Consumer Staples — 9.4%
	320,000			Anheuser-Busch Companies LLC /
				Anheuser-Busch InBev Worldwide, Inc.,
				4.70%, 2/01/36			281,613
	240,000			BAT Capital Corp., 3.56%, 8/15/27			217,571
	260,000			Coca-Cola Co. (The), 1.38%, 3/15/31			195,084
	240,000			Costco Wholesale Corp., 1.60%, 4/20/30			189,727
							883,995
Energy — 4.0%
	240,000			Chevron Corp., 2.24%, 5/11/30			196,504
	220,000			MPLX LP, 2.65%, 8/15/30			173,800
							370,304
Financials — 17.3%
	100,000			Capital One Financial Corp., 3.80%, 1/31/28			88,158
	300,000			Citigroup, Inc., 4.41%, 3/31/31			265,411
	220,000			Fiserv, Inc., 3.50%, 7/01/29			192,986
	320,000			Goldman Sachs Group, Inc. (The),
				1.99%, 1/27/32			234,755
	280,000			JPMorgan Chase & Co., 4.49%, 3/24/31			252,590
	240,000			MetLife, Inc., 4.55%, 3/23/30			223,164
	100,000			Northern Trust Corp., 1.95%, 5/01/30			77,495
	300,000			Wells Fargo & Co., 3.00%, 10/23/26			274,817
							1,609,376

 

 

Principal Amount						Value
Corporate Bonds — 70.2%— (Continued)
Health Care — 6.8%
$	260,000			AbbVie, Inc., 3.20%, 11/21/29		$	226,582
	200,000			Amgen, Inc., 2.20%, 2/21/27			179,239
	240,000			CVS Health Corp., 4.30%, 3/25/28			224,853
							630,674
Industrials — 6.4%
	260,000			Boeing Co. (The), 5.15%, 5/01/30			243,607
	180,000			General Electric Co., 5.88%, 1/14/38			175,827
	180,000			Southwest Airlines Co., 5.13%, 6/15/27			173,683
							593,117
Information Technology — 6.3%
	200,000			Apple, Inc., 3.35%, 2/09/27			188,550
	220,000			Broadcom Corp. / Broadcom Cayman
				Finance, Ltd., 3.88%, 1/15/27			205,626
	220,000			Oracle Corp., 5.38%, 7/15/40			187,225
							581,401
Materials — 2.2%
	160,000			Dow Chemical Co. (The), 3.60%, 11/15/50			100,958
	120,000			Sherwin-Williams Co. (The), 2.95%, 8/15/29			102,266
							203,224
Real Estate — 2.9%
	320,000			Equinix, Inc., 3.20%, 11/18/29			270,395
Utilities — 4.6%
	280,000			NextEra Energy Capital Holdings, Inc.,
				2.25%, 6/01/30			218,186
	240,000			Pacific  Gas and Electric Co., 4.55%, 7/01/30			207,721
							425,907
Total Corporate Bonds (Cost $7,304,363)						$	6,529,413

 

 

Principal Amount						Value
Yankee Dollars — 4.7%
Communication Services — 2.5%
$	200,000			Orange SA, 9.00%, 3/01/31		$	229,118
Financials — 2.2%
200,000				Shell International Finance BV, 6.38%, 12/15/38			204,437
Total Yankee Dollars (Cost $496,668)						$	433,555
Total Investments — 74.9% (Cost $7,801,031)						$	6,962,968
Other Assets less Liabilities — 25.1%							2,338,520
Net Assets — 100.0%						$	9,301,488

 

*

Portfolio of Investments is presented on a consolidated basis. See Note 2.A. in the Notes to Financial Statements.

 

BV — Besloten Vennootschap (Dutch private limited company)

 

LLC — Limited Liability Corporation

 

LP — Limited Partnership

 

SA — Societe Anonyme (French public limited company)

 

 

Portfolio of Investments

 

Principal Amount						Value
U.S. Treasury Obligation — 2.2%
$	20,000,000			U.S. Treasury Bill, 5.39%, 7/11/24		$	19,273,995
Total U.S. Treasury Obligation (Cost $19,276,525)						$	19,273,995
Shares						Value
Exchange-Traded Funds — 94.0%
	1,521,936			Alerian MLP ETF			63,860,435
	795,600			Dimensional Core Fixed Income ETF			31,641,012
	563,472			Fidelity MSCI Utilities Index ETF			21,558,439
	2,276,352			Global X U.S. Preferred ETF			40,314,194
	174,096			Invesco QQQ Trust ETF			61,085,064
	634,608			Invesco Taxable Municipal Bond ETF			15,598,665
	153,504			iShares Broad USD High Yield Corporate
				Bond ETF			5,248,302
	46,800			iShares Core S&P 500 ETF			19,653,192
	1,035,216			iShares Core U.S. Aggregate Bond ETF			95,560,789
	119,808			iShares MBS ETF			10,377,769
	999,648			JPMorgan Equity Premium Income ETF			52,601,478
	2,201,472			Schwab U.S. Aggregate Bond ETF			95,565,899
	411,840			Schwab U.S. Large-Cap ETF			20,336,659
	2,111,616			Schwab U.S. REIT ETF			36,340,911
	378,144			Vanguard Dividend Appreciation ETF			57,893,846
	351,936			Vanguard Intermediate-Term Corporate
				Bond ETF			26,201,635
	52,416			Vanguard S&P 500 ETF			20,136,655
	1,396,512			Vanguard Total Bond Market ETF			95,702,966
	1,377,792			WisdomTree U.S. Efficient Core Fund ETF			46,583,148
Total Exchange-Traded Funds (Cost $910,083,099)						$	816,261,058
Total Investments — 96.2% (Cost $929,359,624)						$	835,535,053
Other Assets less Liabilities — 3.8%							32,664,774
Net Assets — 100.0%						$	868,199,827

 

 

 

ETF — Exchange-Traded Fund

MBS — Mortgage-Backed Security

MLP — Master Limited Partnership

MSCI — Morgan Stanley Capital International

REIT — Real Estate Investment Trust

S&P — Standard and Poor’s

USD — United States Dollar

 

 

Portfolio of Investments

 

Shares						Value
Exchange-Traded Funds — 99.8%
	148,491			iShares 1-3 Year Treasury Bond ETF		$	12,032,226
	64,386			iShares 7-10 Year Treasury Bond ETF			5,768,342
	16,947			iShares Core MSCI EAFE ETF			1,056,815
	47,124			iShares Core S&P 500 ETF			19,789,252
Total Exchange-Traded Funds (Cost $39,491,355)						$	38,646,635
Total Investments — 99.8% (Cost $39,491,355)						$	38,646,635
Other Assets less Liabilities — 0.2%							79,060
Net Assets — 100.0%						$	38,725,695

 

ETF — Exchange-Traded Fund

 

MSCI EAFE — Morgan Stanley Capital International Europe, Australasia and Far East

 

S&P — Standard and Poor’s

 

 

 

 

 

 

 

 

 

 

 

 

(1) Organization

 

Strategy Shares (the “Trust”) was organized on September 7, 2010 as a Delaware statutory trust. The Trust is registered under the Investment Company Act of 1940 (the “1940 Act”), as an open-end management investment company. The Declaration of Trust permits the Trust to issue an unlimited number of shares of beneficial interest (“Shares”) in one or more series representing interests in separate portfolios of securities. Currently, the Trust offers its Shares in six separate series. The accompanying Financial Statements relate to the following series: Strategy Shares Gold-Hedged Bond ETF (GLDB) (“Gold-Hedged Bond ETF”), Strategy Shares Nasdaq 7HANDL™ Index ETF (HNDL) (“Nasdaq 7HANDL™ Index ETF”), and Strategy Shares Newfound/ReSolve Robust Momentum ETF (ROMO) (“Newfound/ReSolve Robust Momentum ETF”), (individually referred to as a “Fund,” or collectively as the “Funds”). Nasdaq 7HANDL™ Index ETF and Newfound/ReSolve Robust Momentum ETF are classified as diversified under the 1940 Act, while Gold-Hedged Bond ETF is classified as non-diversified under the 1940 Act. The Funds are passively- managed exchange-traded funds. The investment objective of the Gold-Hedged Bond ETF is to seek investment results that correlate, before fees and expenses, to the performance of the Solactive Gold-Backed Bond Index. The investment objective of the Nasdaq 7HANDL™ Index ETF is to seek investment results that correlate generally, before fees and expenses, to the price and yield performance of the Nasdaq 7HANDL™ Index. The investment objective of the Newfound/ReSolve Robust Momentum ETF is to seek to provide investment returns that correspond, before fees and expenses, to the performance of the Newfound/ReSolve Robust Equity Momentum Index. The Funds’ prospectuses provide a description of each Fund’s investment objectives, policies, and strategies. The assets of each Fund are segregated, and a shareholder’s interest is limited to the Fund in which shares are held.

 

The Nasdaq 7HANDL™ Index ETF commenced operations on January 16, 2018, the Newfound/ReSolve Robust Momentum ETF commenced operations on November 1, 2019, and the Gold-Hedged Bond ETF commenced operations on May 17, 2021.

 

Shares of the Nasdaq 7HANDL™ Index ETF are listed and traded on the Nasdaq Stock Market (“Nasdaq”). Shares of the Gold-Hedged Bond ETF and Newfound/ReSolve Robust Momentum ETF are listed and traded on the Cboe BZX Exchange, Inc. Market prices for the Shares may be different from their net asset value (“NAV”). Each Fund issues and redeems Shares on a continuous basis at NAV only in large blocks, currently 25,000 Shares, called “Creation Units.” Creation Units are issued and redeemed principally in-kind for securities included in a specified universe. Once created, Shares generally trade in the secondary market at market prices that change throughout the day in amounts less than a Creation Unit.

 

Under the Trust’s organizational documents, its officers and Board of Trustees (“the Board”) are indemnified against certain liabilities arising out of the performance of their duties to the Funds. In addition, in the normal course of business, the Trust may enter into contracts with vendors and others that provide for general indemnifications. The Trust’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Trust. However, based on experience, the Trust expects that risk of loss to be remote.

 

(2) Significant Accounting Policies

 

The following is a summary of significant accounting policies consistently followed by each Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles in the United States of America (“GAAP”). Each Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 946 Financial Services - Investment Companies. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets, liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.

 

A.

Basis of Consolidation

 

The accompanying Consolidated Portfolio of Investments, Consolidated Statement of Assets and Liabilities, Consolidated Statement of Operations, Consolidated Statement of Changes in Net Assets, and Consolidated Financial Highlights of the Gold-Hedged Bond ETF include the accounts of its wholly owned subsidiary, SSGBI Fund Limited (the “Subsidiary”). The Subsidiary is organized under the laws of the Cayman Islands, and primarily invests in gold futures contracts and total return swaps as well as cash and cash equivalents such as treasury securities which serve as collateral for the Subsidiary’s investment in gold futures contracts and total return swap investments. The Fund will invest up to 25% of its total assets in its Subsidiary. As of October 31, 2023, the net assets of the Subsidiary was 18.8% of the total net assets of the Fund. The Subsidiary is subject to the same investment restrictions as the Fund, when viewed on a consolidated basis.

 

B.

Investment in a Subsidiary

 

By investing in the Subsidiary, the Gold-Hedged Bond ETF is indirectly exposed to the commodities risks associated with the Subsidiary’s investments in commodity-related instruments. There can be no assurance that the Subsidiary’s investments will contribute to the Gold-Hedged Bond ETF’s returns. The Subsidiary is not registered under the 1940 Act and is not subject to all the investor protections of the 1940 Act. The Board, however, has oversight responsibility for the investment activities of the Gold-Hedged Bond ETF, including its investment in its Subsidiary, and the Gold-Hedged Bond ETF’s role as the sole shareholder of the Subsidiary. Changes in the laws of the United States and/or the Cayman Islands could result in the inability of the Gold-Hedged Bond ETF and/or the Subsidiary to operate as described in the prospectus and could adversely affect the Gold-Hedged Bond ETF, such as by reducing the Gold -Hedged Bond ETF’s investment returns. The financial statements of the Subsidiary have been consolidated with the Gold-Hedged Bond ETF’s financial statements in this report.

 

C.

Investment Valuations

 

The Funds hold investments at fair value. Fair value is defined as the price that would be expected to be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The valuation techniques used to determine fair value are further described below.

 

 

Security values are ordinarily obtained through the use of independent pricing services in accordance with procedures approved by the Trust’s Board. Pursuant to these procedures, the Funds may use a pricing service, bank, or broker-dealer experienced in such matters to value the Funds’ securities. When reliable market quotations are not readily available for any security, the fair value of that security will be determined in accordance with procedures approved by the Board. The fair valuation process is designed to value the subject security at the price the Funds would reasonably expect to receive upon its current sale. Additional consideration is given to securities that have experienced a decrease in the volume or level of activity or to circumstances that indicate that a transaction is not orderly.

 

The Trust has a three-tier fair value hierarchy that is dependent upon the various “inputs” used to determine the value of the Funds’ investments. The valuation techniques described below maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value. These inputs are summarized in the three broad levels listed below:

 

●

Level 1 – Quoted prices in active markets for identical assets.

 

●

Level 2 – Other observable pricing inputs at the measurement date (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).

 

●

Level 3 – Significant unobservable pricing inputs at the measurement date (including the Fund’s own assumptions in determining the fair value of investments).

 

The inputs or methodology used for valuing investments are not necessarily an indication of the risk associated with investing in those investments.

 

Equity securities (including foreign equity securities) traded on a securities exchange are valued at the last reported sales price on the principal exchange, except that equity securities traded on Nasdaq are valued at the Nasdaq official closing price. If there is no reported sale on the principal exchange, and in the case of over-the- counter securities, equity securities are valued at the mean of the quoted bid and asked prices. In each of these situations, valuations are typically categorized as Level 1 in the fair value hierarchy.

 

Debt securities traded on a national securities exchange or in the over- the-counter market are valued at the last reported sales price on the principal exchange. If there is no reported sale on the principal exchange, and for all other debt securities, debt securities are valued at a price supplied by a security pricing service. In each of these situations, valuations are typically categorized as Level 2 in the fair value hierarchy.

 

Swaps are generally valued at the last quoted sales price of the swap (if exchange-listed) or of the underlying security (if such security is exchange-listed), or in the absence of a sale, fair valued at the mean between the current bid and ask prices, and are typically categorized as Level 2 in the fair value hierarchy. Other types of swaps may be fair valued by a pricing agent covering the specific type of swap.

 

The following table provides the fair value measurement as of October 31, 2023.

 

										Total
Fund		Level 1				Level 2				Investments
Gold-Hedged Bond ETF
Corporate Bonds		$	—			$	6,529,413			$	6,529,413
Yankee Dollars			—				433,555				433,555
Other Financial Instruments(1)
Total Return Swap Agreements			—				47,761				47,761
Total Investments		$	—			$	7,010,729			$	7,010,729
Nasdaq 7HANDL™ Index ETF
U.S. Treasury Obligation		$	—			$	19,273,995			$	19,273,995
Exchange-Traded Funds			816,261,058				—				816,261,058
Other Financial Instruments(1)
Total Return Swap Agreements			—				(6,702,684	)			(6,702,684	)
Total Investments		$	816,261,058			$	12,571,311			$	828,832,369
Newfound/ReSolve Robust Momentum ETF
Exchange-Traded Funds		$	38,646,635			$	—			$	38,646,635
Total Investments		$	38,646,635			$	—			$	38,646,635

 

(1)

Other Financial Instruments are derivative instruments not reflected in the total investments, such as swap agreements, which are valued at fair value.

 

For the period ended October 31, 2023, there were no Level 3 investments for which significant unobservable inputs were used to determine fair value.

 

D.

Security Transactions and Related Income

 

Investment transactions are accounted for no later than the first calculation of the NAV on the business day following the trade date. For financial reporting purposes, however, security transactions are accounted for on the trade date on the last business day of the reporting period. Discounts and premiums on securities purchased are amortized over the lives of the respective securities using the effective interest method. Securities gains and losses are calculated on the identified cost basis. Interest income and expenses are accrued daily. Dividends, less foreign tax withholding, if any, are recorded on the ex-dividend date. Investment income from non-U.S. sources received by a Fund is generally subject to non-U.S. withholding taxes at rates ranging up to 30%. Such withholding taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties. The Funds may be subject to foreign taxes on gains in investments or currency repatriation. The Funds accrue such taxes, as applicable, based on their current interpretation of tax rules in the foreign markets in which they invest.

 

E.

Cash and Cash Equivalents

 

Idle cash may be swept into various overnight demand deposits and is classified as cash and cash equivalents on the Statements of Assets and Liabilities. The Funds maintain cash in bank deposit accounts which, at times, may exceed United States federally insured limits. Amounts swept overnight are available on the next business day.

 

 

F.

Derivative Instruments

 

Swap Agreements: The Funds may enter into swap agreements (“swaps”) in an attempt to obtain a particular desired return at a lower cost to the Fund than if it had been invested directly in an instrument that yielded that desired return. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of returns) earned or realized on particular predetermined investments or instruments. The gross returns to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” i.e., the return on or increase in value of a particular dollar amount invested in a “basket” of securities representing a particular index. The “notional amount” of the swap agreement is only a fictive basis on which to calculate the obligations the parties to a swap agreement have agreed to exchange. A Fund’s obligations (or rights) under a swap agreement will generally be equal only to the amount to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the “net amount”).

 

Total Return Swaps: The Funds may enter into total return swaps to gain or mitigate exposure to the underlying securities or indices. In “long” total return swaps, the counterparty will generally agree to pay the Fund the amount, if any, by which the notional amount of the swaps would have increased in value had it been invested in the particular instruments, plus an amount equal to any dividends or interest that would have been received on those instruments. The Fund will agree to pay to the counterparty an amount equal to a fixed or floating rate of interest on the notional amount of the swaps plus the amount, if any, by which the notional amount would have decreased in value had it been invested in such instruments plus, in certain instances, commissions or trading spreads on the notional amount. Total return swaps do not involve the delivery of securities or other underlying instruments. Until a total return swap is settled in cash, the gain or loss on the notional amount plus dividends or interest on the instruments less the interest paid by the Fund on the notional amount is recorded as “unrealized appreciation or depreciation on swap agreements” and, when cash is exchanged, the gain or loss realized is recorded as “realized gains or losses on swap agreements.” A Fund may enter into total return swaps that provide the opposite return of its benchmark index or security (“short” the index or security). Its operations are similar to those swaps disclosed above except that the counterparty pays interest to the Fund on the notional amount outstanding and that dividends or interest on the underlying instruments reduce the value of the swaps plus, in certain instances, the Fund will agree to pay to the counterparty commissions or trading spreads on the notional amount. These amounts are netted against any unrealized appreciation or depreciation to determine the value of the swaps.

 

The primary risks associated with the use of swaps are an imperfect correlation between the prices of financial instruments and movements in the prices of the underlying investments and the inability of counterparties to perform under the agreement. The counterparty to any swap agreement will typically be a bank, investment banking firm or broker-dealer. The Fund will bear the counterparty risk (i.e., the risk of loss of the net amount), if any, expected to be received under a swap in the event of the default or bankruptcy of the swap counterparty. As of October 31, 2023, the Gold-Hedged Bond ETF and the Nasdaq 7HANDL™ Index ETF invested in total return swaps. The unrealized appreciation/ (depreciation) as of October 31, 2023 is disclosed in the Total Return Swap Agreement tables found earlier in this report.

 

Summary of Derivative Instruments

 

The following table summarizes the fair values of derivative instruments on the Statements of Assets and Liabilities, categorized by risk exposure, as of October 31, 2023.

 

		Assets				Liabilities
		Unrealized Appreciation				Unrealized Depreciation
Fund		on Swap Agreements				on Swap Agreements
Equity Risk Exposure:
Gold-Hedged Bond ETF		$	47,761			$	—
Nasdaq 7HANDL™ Index ETF			—				(6,702,684	)

 

The following table presents the effect of derivative instruments on the Statements of Operations, categorized by risk exposure, for the period ended October 31, 2023.

 

		Net Realized
		Gains (Losses) from				Change in Unrealized
		Swap Agreements				Appreciation/Depreciation
		Recognized as a				on Swaps Recognized
Fund		Result from Operations				from Operations
Equity Risk Exposure:
Gold-Hedged Bond ETF		$	(1,001,225	)		$	83,413
Nasdaq 7HANDL™ Index ETF			(14,079,904	)			(7,927,737	)

 

G.

Dividends and Distributions to Shareholders

 

Dividends to shareholders are recorded on the ex-dividend date. For the Gold- Hedged Bond ETF and the Nasdaq 7HANDL™ Index ETF, dividends from net investment income, if any, are declared and paid monthly. For the Newfound/ReSolve Robust Momentum ETF, dividends from net investment income, if any, are declared and paid annually. Net realized capital gains, if any, are distributed at least annually.

 

The amount of dividends from net investment income and net realized gains are determined in accordance with federal income tax regulations, which may differ from GAAP. These “book/tax” differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature (e.g., distributions and income received from pass-through investments, differing treatment of income relating to swap agreements), such amounts are reclassified within the capital accounts based on their nature for federal income tax purposes; temporary differences do not require reclassification. Temporary differences are primarily due to wash sales and differing treatment on certain investments. To the extent dividends and distributions exceed net investment income and net realized gains for tax purposes, they are reported as a distribution of capital.

 

The Funds may own shares of real estate investments trusts (“REITs”), which report information on the source of their distributions annually. Distributions received from investments in REITs in excess of income from underlying investments are recorded as realized gain and/or as a reduction to the cost of the individual REIT.

 

H.

Allocation of Expenses

 

Expenses directly attributable to a Fund are charged to that Fund. Expenses not directly attributable to a Fund are allocated proportionally among all series of the Trust in relation to the net assets of each series or on another reasonable basis. Those expenses that are shared are allocated proportionally among each of the trusts or on another reasonable basis.

 

 

(3)

Investment Advisory and Other Contractual Services

 

A.

Investment Advisory Fees

 

Rational Advisors, Inc. (the “Advisor”) is the investment advisor of the Funds. The Advisor is under common control with Catalyst Capital Advisors LLC and AlphaCentric Advisors LLC, the investment advisors of other funds in the same group of investment companies also known as a “fund complex.” The Nasdaq 7HANDL™ Index ETF and the Newfound/ReSolve Robust Momentum ETF pay 0.60% and 0.49%, respectively, of each Fund’s average daily net assets, computed daily and paid monthly, for the advisory services it receives from the Advisor.

 

The Gold-Hedged Bond ETF pays 0.79% of the Fund’s average daily net assets, computed daily and paid monthly, for services it receives from the Advisor. This fee is structured as a “Unified Fee,” pursuant to which the Advisor is obligated to pay or arrange for the payment of substantially all expenses of the Fund (including, without limitation, transfer agent fees, administrative fees and expenses, custodian fees, legal fees, accounting fees, any other expenses (including clerical expenses) of issue, sale, repurchase or redemption of shares, expenses of registering or qualifying shares for sale, transfer taxes, all expenses of preparing the Trust’s registration statements and prospectuses for the Fund, and the cost of printing and delivering to shareholders prospectuses and reports), except the Fund’s Advisory fee; taxes; brokerage commissions and trading costs; interest (including borrowing costs and overdraft charges); short sale dividends and interest expenses; acquired fund fees and expenses; and non -routine or extraordinary expenses of the Fund (such as litigation or reorganizational costs), each of which is paid by the Fund. The Advisor’s Unified Fee is designed to cause substantially all of the Fund’s expenses to be paid and to compensate the Advisor for providing services for the Fund.

 

The Advisor has contractually agreed to waive all or a portion of its Advisory fee and/or reimburse certain operating expenses of the Nasdaq 7HANDL™ Index ETF and the Newfound/ReSolve Robust Momentum ETF (exclusive of acquired fund fees and expenses; brokerage commissions and trading costs; interest (including borrowing costs and overdraft charges), taxes, short sale dividends and interest expenses, and non-routine or extraordinary expenses (such as litigation or reorganizational costs)) in order to limit total annual fund operating expenses after fee waivers and expense reimbursement to 0.80% and 0.75%, respectively, of the Fund’s average annual daily net assets (“Expense Cap”). The Expense Cap will remain in effect until at least August 31, 2024 for the Nasdaq 7HANDL™ Index ETF and the Newfound/ReSolve Robust Momentum ETF. The Expense Cap may be terminated earlier only upon the approval of the Board. The Advisor may recoup Advisory fees that it waived or Fund expenses that it paid under this agreement for a period of three years after the fees were waived or expenses paid, if the recoupment can be achieved without causing the expense ratio (after the recoupment is taken into account) to exceed the lesser of (i) the expense limit in effect at the time the fees were waived or expenses paid, or (ii) the expense limit in place at the time of recoupment.

 

As of October 31, 2023, the Advisor may recoup amounts from the Funds as follows:

 

		Expires				Expires				Expires				Expires
Fund		4/30/24				4/30/25				4/30/26				4/30/27				Total
Newfound/ReSolve Robust Momentum ETF		$	54,116			$	31,186			$	38,417			$	24,193			$	147,912

 

B.

Administration, Transfer Agent, Accounting, and Management/ Legal administration Fees

 

Citi Fund Services Ohio, Inc. (“Citi”) provides financial administration, transfer agency and portfolio accounting services to the Trust. Citi performs certain services on behalf of the Trust including but not limited to: (1) preparing and filing the Trust’s periodic financial reports on forms prescribed by the Securities and Exchange Commission (“SEC”); (2) calculating Fund expenses and making required disbursements; (3) calculating Fund performance data; and (4) providing certain portfolio compliance support services. As transfer agent, Citi issues shares of a Fund in Creation Units to fill purchase orders for Fund shares, maintains records of the issuance and redemption of each Fund’s shares, and acts as each Fund’s dividend disbursing agent. As portfolio accountant, Citi maintains certain financial records of the Trust and provides accounting services to each Fund which include the daily calculation of each Fund’s NAV. Citi also performs certain other services on behalf of the Trust including providing financial information for the Trust’s federal and state tax returns and financial reports required to be filed with the SEC.

 

MFund Services LLC (“MFund”), an affiliate of the Advisor, provides the Funds with management and legal administrative services. For these services, each Fund pays MFund a fee accrued daily and paid monthly based on a percentage of each Fund’s average net assets, subject to a minimum annual fee. The fees are as follows:

 

–

0.030% of the aggregate net assets from $0 to $1 billion; and

 

–

0.020% of the aggregate net assets above $1 billion

 

The asset -based fees are subject to an annual minimum of $30,000 per Fund. In addition, the Funds reimburse MFund for any reasonable out-of-pocket expenses incurred in the performance of its duties. These fees, and their related amounts payable to MFund, are shown on the Statement of Operations and on the Statement of Assets and Liabilities, respectively, as “Management/Legal administration.”

 

Administration, Transfer Agent, Accounting, and Management/Legal administration Fees (as well as substantially all other expenses) for the Gold- Hedged Bond ETF are paid by the Advisor from the amounts received from the Unified Fee, as detailed previously.

 

C.

Distribution and Shareholder Services Fees

 

Foreside Fund Services, LLC (the “Distributor”) is the principal underwriter and distributor of each Fund’s Shares. The Distributor is compensated by the Advisor in accordance with a Distribution Services Agreement between the Advisor and the Distributor. The Trust has adopted but has yet to implement a Rule 12b- 1 Distribution Plan (the “Plan”). The Plan is designed to compensate or reimburse financial intermediaries (including the Distributor, the Advisor, and their affiliates) for activities principally intended to result in the sale of Fund shares, such as advertising and marketing of shares (including printing and disseminating prospectuses and sales literature to prospective shareholders and financial intermediaries) and providing incentives to financial intermediaries to sell shares.

 

 

The Plan is also designed to cover the cost of administrative services performed in conjunction with the sale of shares, including, but not limited to, shareholder services, recordkeeping services and educational services, as well as the costs of implementing and operating the Plan. In accordance with the Plan, the Distributor may enter into agreements with financial intermediaries and dealers relating to distribution and/or marketing services with respect to the Funds. Pursuant to the Plan, the Funds may pay a 12b-1 fee not to exceed 0.25% per year of each Fund’s average daily net assets. No 12b- 1 fee is currently paid by the Funds and the Board has not approved any payments under the Plan.

 

D.

Custodian Fees

 

Citibank, N.A. (the “Custodian”), an affiliate of Citi, serves as custodian for each Fund and safeguards and holds each Fund’s cash and securities, settles each Fund’s securities transactions, and collects income on Fund investments. The Custodian receives fees based on the level of each Fund’s average daily net assets for the period plus out-of-pocket expenses.

 

E.

Compliance Services

 

Pursuant to a Compliance Services Agreement, MFund, an affiliate of the Advisor, provides chief compliance officer services to the Funds. For these services, the Funds pay MFund $1,200 per month for the first fund in the fund family and $400 each additional fund; $400 for each adviser and sub-adviser; and .0025% of the assets of each Fund. In addition, the Funds reimburse MFund for any reasonable out -of-pocket expenses incurred in the performance of its duties under the Compliance Services Agreement. These fees, and their related amounts payable to MFund, are shown on the Statement of Operations and on the Statement of Assets and Liabilities, respectively, as “Compliance officer.”

 

(4) Investment Transactions

 

Purchases and sales of investments, excluding in-kind transactions and short-term investments, for the period ended October 31, 2023 were as follows:

 

Fund		Purchases				Sales
Gold-Hedged Bond ETF		$	671,596			$	4,733,578
Nasdaq 7HANDL™ Index ETF			139,076,976				133,216,166
Newfound/ReSolve Robust Momentum ETF			62,542,483				61,745,471

 

Purchases and sales of in-kind transactions for the period ended October 31, 2023 were as follows:

 

Fund		Purchases				Sales
Gold-Hedged Bond ETF		$	—			$	—
Nasdaq 7HANDL™ Index ETF			6,151,346				120,731,923
Newfound/ReSolve Robust Momentum ETF			—				9,075,938

 

(5) Capital Share Transactions

 

Shares are issued and redeemed by each Fund only in aggregations of a specified number of shares or multiples thereof at net asset value. Except when aggregated in Creation Units, shares of each Fund are not redeemable. Transactions in shares for each Fund are disclosed in detail on the Statements of Changes in Net Assets.

 

The consideration for the purchase of Creation Units of a Fund generally consists of the in-kind deposit of a designated basket of securities, which constitutes an optimized representation of the securities of that Fund’s specified universe, and an amount of cash.

 

Investors purchasing and redeeming Creation Units may be charged a transaction fee to cover the transfer and other transactional costs it incurs to issue or redeem Creation Units. The standard charge and maximum transaction fee for each Fund are $250 and $1,000, respectively.

 

From time to time, settlement of securities related to subscriptions-in-kind or redemptions-in-kind may be delayed. In such cases, securities related to in-kind subscriptions are reflected as “Due from custodian” and securities related to in-kind redemptions are reflected as “Securities payable related to in-kind transactions” on the Statements of Assets and Liabilities.

 

During the period ended October 31, 2023, the Funds received securities in exchange for subscriptions of capital shares (subscriptions-in-kind) and distributed securities in exchange for redemptions (redemptions-in-kind) as follows:

 

		Fair Value of				Fair Value of
Fund		Subscriptions-in-Kind				Redemptions-in-Kind
Gold-Hedged Bond ETF		$	—			$	—
Nasdaq 7HANDL™ Index ETF			6,151,346				120,731,923
Newfound/ReSolve Robust Momentum ETF			—				9,075,938

 

(6) Federal Income Taxes

 

It is the policy of each Fund to qualify or continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies, as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes.

 

The Trust has evaluated tax positions taken or expected to be taken in the course of preparing each Fund’s tax returns to determine whether it is more-likely-than not (i.e., greater than 50-percent chance) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. A tax position that meets the more -likely-than -not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. Differences between tax positions taken in a tax return and amounts recognized in the financial statements will generally result in an increase in a liability for taxes payable (or a reduction of a tax refund receivable), including the recognition of any related interest and penalties as an operating expense. Tax positions taken in tax years remain subject to examination by tax authorities (generally three years plus the interim tax period since then for federal income tax purposes). The determination has been made that there are not any uncertain tax positions that would require the Funds to record a tax liability and, therefore, there is no impact to the Funds’ financial statements. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense on the Statements of Operations. During the period ended October 31, 2023, the Funds did not incur any interest or penalties. The tax year end for the Nasdaq 7HANDL™ Index ETF is December 31, and the tax year end for the Gold- Hedged Bond ETF and Newfound/ReSolve Robust Momentum ETF is April 30.